Quick Market Update and Real Estate in the News
HELLO AGAIN AND A BIG THANK YOU TO MY CLIENTS!
I know it’s been a while since my last blog. Sorry about that! I’ve been busier in the past half year than I have ever been in my working career. I have been fortunate to work with absolutely fabulous clients this year and I cannot thank them enough for trusting me to help them with their listings and purchases.
Since COVID-19 hit big in spring of 2020, I have been continually amazed at the resilience of people in the Portland metro area. Whether my clients were moving in or moving out, moving up or moving down… they all were confident (if not a little nervous) in their real estate journey. More importantly, I think everyone I have worked with during the pandemic has successfully achieved their immediate housing goals.
Thank you to all my wonderful clients! I hope you love where you are and, when you’re ready to make the next step on your journey, that we can work together again.
QUICKIE-QUICK PORTLAND MARKET UPDATE
I last wrote a market update in October of last year. I just did a quick read-through of that blog and everything I wrote is still relevant so I don’t consider it out of date. Check it out to gain insight into the housing market in the world of COVID-19.
The only thing I’d add to what I wrote then is that the Portland area has now entered into the typical summer-time market lull… Buyer activity is less frenzied and listing volume is down. We Oregonians all like to scatter to the winds when the weather turns nice and this summer is no exception!
If you’re a buyer frustrated by the insane level of competitiveness over the past year, there’s a tad more opportunity for you in this summer market than there was in the winter/spring market.
Portland metro area inventory in months.
*Inventory in Months is calculated by dividing the Active Residential Listings at the end of the month in question by the number of closed sales for that month. This includes proposed and under construction homes.
This doesn’t mean home prices are going down. Wouldn’t that be nice for buyers? No, prices are still heading upwards and multiple offers are still common, just not at the crazy pace of early 2021. However, I am already feeling an uptick in buyer activity even as I write this. People are beginning to reach out to me, interest in listings is picking up, chatter on the real estate boards is that people are gearing up for late summer/early fall, which is when we typically have a boost in sale activity.
All of the above means… we’re starting to normalize into the usual seasonal trends (no longer COVID-19 driven) but that it’s still very much a seller’s market. The end of forbearance and potential end of eviction moratoriums might impact the market just a tad, but these factors are unlikely to be felt in the housing market until sometime next year, and even then is unlikely to have a major effect
I wrote in my last blog to expect things to even out in a year or two… I’m sticking to that statement. We’ve got another few seasons of enhanced buyer activity before things will become more balanced. This summer slower-paced market has helped… but we’re still standing at less than 1 month of housing inventory (around 4 months is considered “balanced”).
THE REAL ESTATE INDUSTRY
It seems like, for whatever reason, the real estate industry lately has been under more of a microscope than usual. And when I say real estate industry, I mostly mean: the “traditional” method of buying and selling homes.
I wrote a blog a couple years ago called “Why are Realtors So Expensive? (And Disruption in Real Estate)”.
People have been trying to “disrupt” traditional real estate basically since the concept of real estate was invented. What disruptors seem to always fail to realize is how good real estate is at adapting to changing times. On the blog I linked to above, there’s a section with a brief history of real estate. It’s a quick look at where we came from.
Almost all the news centers on real estate commissions and “traditional” real estate. So, before I get into disruptors and other relevant real estate news, here’s a few examples of the evolving nature of Realtors and real estate transactions and how there’s really no such thing as “traditional” real estate:
1. We didn’t start out with a buyer agent/listing agent model. Buyer agents came about a few decades ago because buyers wanted and NEEDED representation, not because agents are trying to take advantage of people.
2. Buyer agent’s sole/primary purpose has never been to find a home, so the nature of buyer agency didn’t change when agents began to put together an online, publicly accessible database of listings (what became the various Multiple Listing Services around the country). Finding the home is an important part of the process, but hardly the reason for the existence of buyer agency. Realtors have adapted to the times in how they help buyers successfully find and purchase homes.
3. Home inspections as we know them today didn’t exist historically. Buyer agents now connect buyers with multiple different professionals that look at everything from roof to basement to that abandoned cesspool you probably would never have known was in the crawlspace.
4. The scope of what an agent does over time has increased 10 fold. In the past, agents were not expected to have any real knowledge of home systems, components, and mechanics. They were simply brokers drawing up (extremely simple) contracts.
Now, buyer and seller agents are expected to possess a wide range of housing knowledge, helping sellers make decisions about prepping a home for market, pointing out potential home issues to both buyers and sellers before any offers are even considered, connecting their clients with a wide database of professionals, and even giving an idea of costs on various home repair/improvement projects. Agents also need working knowledge of title, financing, marketing, zoning, negotiation, communication, de-escalation tactics, and contract documents, not to mention hyper-local awareness of market activity, neighborhoods, schools, etc.
5. Real estate contracts grow in complexity every single year, as do the ethical and legal responsibilities of Realtors. Agents are expected to be conversant not just with contract language, but also in the standards of practice in their area of expertise (residential, commercial, leasing, etc.) AND in their location of business, such as the Portland metro area. These standards vary WIDELY from market to market.
6. One of the biggest changes that is constantly evolving is how to market a home successfully. The more eyeballs on a home, and the more boots in the door looking at it, the more it’s likely to sell for. This is why the National Association of Realtors (NAR) strongly advocates against “pocket” listings. Realtors must follow a strict code of conduct when it comes to selling a home outside of the MLS because we all know that commanding a higher price off-market is unlikely (but there are occasional situations where it works!).
Real Estate in the News: Disruptors - iBuyers
When iBuyers (companies that buy homes, usually off-market, with the intention to almost immediately re-list the home on the open market for a profit) came about, Realtors just shook their heads.
iBuyer companies have re-branded what is known as wholesaling/flipping and made it a heck of a lot more mainstream. But, Realtors have been selling properties off-market AND on-market to investors for decades. iBuyers like OpenDoor, Zillow Offers, OfferPad, and others are just a LOT better at standardizing this and rebranding it as a “service” on a national level.
(You’ll most often find me mentioning OpenDoor and Zillow Offers, as they seem to be the two companies that have broken out on top of this race.)
I’ll quickly define wholesaling, which is a bit controversial. Technically, this means making an offer on a property, getting it into contract, then that buyer finds ANOTHER buyer and re-assigns the contract to that person, while charging an additional finder’s fee.
iBuyer companies are more akin to flippers in that they don’t reassign the contract… they DO complete the purchase and then re-list the home on the open market. But, unlike a traditional flipper, they usually put little to no work into the home before placing it on the market. Because of this, and because of the tactics they use to convince homeowners to sell under market value… I consider iBuyer companies to be somewhat of a dastardly mix between a flipper and a wholesaler.
There are times when a homeowner needs to sell fast for financial or other reasons. Sometimes, the home is in a poor state and the homeowner does not have the means or wherewithal to get it cleaned up and ready for the open market. Sometimes they need a quick sale for logistical reasons. Sometimes they just don’t want to deal with the hassle.
As long as the homeowner understands how much money they are leaving on the table in exchange for a little bit more convenience and a little faster timeline, then I’m all for it.
Whatever the reason, sometimes it IS in the sellers’ best interests to sell off-market and under market value to an investor or wholesaler. But, these cases are relatively rare. If a case like this happens, an experienced Realtor should have flipper/investors that they can contact to see if it’s possible to sell a distressed property off-market. If you hire a Realtor to do this, they are ethically bound to represent your best interests, whether that be securing top dollar or selling fast and off-market. You are much more likely to close on the sale of your home and net more money with a Realtor (whether off-market or on market) than through an iBuyer.
Again, this should still be a relatively rare event – needing/wanting to sell low and off-market to an investor. But, if you’re considering this option, contact me and I can evaluate your home and discuss the options.
That’s why in most cases I don’t think that iBuyers are the right solution for home sellers. They are proposing this process (selling low and off-market) to homeowners that are often EASILY leaving 10s of thousands of dollars on the table. They can do this because they aren’t ethically bound to represent the best interests of the homeowner. They’re in it solely to make a profit. And there’s nothing wrong with that! I just hope that homeowners increasingly become wise to the tactics they use (grossly overinflating how much it costs to sell a home with a Realtor, downplaying their own fees, etc.).
They take advantage of homeowners that don’t realize the true value of their home. Homeowners often don’t factor in the high fees that iBuyers charge and that these companies frequently require major repairs or price concessions once they’ve sent an inspector to the home. (Usually iBuyers make an “initial offer” sight-unseen.)
NOTE: If a homeowner is thinking of selling to an iBuyer because they don’t have the cash to fix up the home for sale, scroll down to the end of this article for info about a relatively new company that offers remodeling services that are fully paid for at closing. It’s a great solution to maximize the net proceeds from selling your home without having to pay for the contract work up front!
Having said all the above, I have nothing personally against Zillow Offers OR OpenDoor. While I don’t think it’s the right solution for the vast majority of sellers, either of these can occasionally be a good option. I’ve also sold homes owned by both companies and would happily do so again if the home is the right fit for my buyers.
If you’re curious about what it’s like to BUY a home from Zillow or OpenDoor, contact me and I can discuss my experiences with you.
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Even though iBuyers have been in the market for a few years now, they seem to have impacted the number of homeowners utilizing Realtors for their transactions barely at all. iBuyers are working very hard to gain market share, and they’ve made some inroads into taking advantage of a few home sellers here and there. And yet, the vast majority of people still turn to Realtors when they purchase and when they sell.
People still turn to Realtors because buying and/or selling a home is a major life milestone. It’s complicated, often messy, necessitates a wide array of knowledge about many different industries, has high potential for landing sellers (and sometimes buyers) in court, and altogether can be a scary and potentially disastrous process when you go it alone or employ a national company where communication runs through various call centers.
No matter how many “disruptors” claim to make this process super easy, stress-free, and fast, they fall short every single time. The best way to limit stress and get a quick sale for max dollar is to interview Realtors and hire someone savvy that you will work well with.
Yes, I know I am 100% biased in this, but that doesn’t make me wrong ;)
It should come as no surprise that the vast majority of people (see chart above) feel that they need a professional in their corner throughout the entire process to help guide them to a successful outcome.
(NOTE – There are a few anecdotal cases where iBuyers like Zillow and OpenDoor purchased a home well OVER market value. Lucky homeowners are sometimes able to take advantage of these company’s lack of market knowledge and come out on top. Yay homeowners! But, make sure to consult with a Realtor before you pull the trigger. They can help you look through the fee structure and make sure the deal makes sense for you by comparing it to their CMA and seller net sheet. Or, they may have an investor willing to purchase off-market for the same price and a lot less fees if a quick sale is the goal.)
Real Estate in the News: NAR vs the DOJ
You may or may not have heard that the Department of Justice (DOJ) is investigating the National Association of Realtors (NAR). This isn’t anything new. The DOJ investigates national organizations all the time.
The interesting news from a few weeks back is that the NAR and the DOJ had reached a settlement where the NAR agreed to a series of rule adjustments (again, not the first time this has happened). The NAR had already begun to implement some of these changes. They involved things like disclosure of buyer agent commissions, limiting access of lockboxes to licensed Realtors that belong to the local NAR chapter, etc. All these things seemed pretty reasonable.
But, suddenly, the DOJ pulled out of the agreed-upon settlement. The reason that the DOJ gave is so that they can “perform a broader investigation into NAR’s rules”. It will be interesting to see if anything additional comes out of this beyond the original settlement language.
It appears the main thing concerning the DOJ right now are buyer agent commissions and anti-competitiveness.
Real Estate in the News: REX vs ZILLOW
The other news is that REX Real Estate (a discount brokerage) sued Zillow and lost. This was regarding representation of REX listings on Zillow’s website and mobile app.
REX Real Estate operates on the principle that buyers don’t need representation. But, should buyers want a buyer’s agent, they should just pay for it themselves. The premise is that REX represents the seller and doesn’t offer a buyer agent commission (BAC). Based on what I see on their website, REX charges a listing commission roughly the same as what the average listing commission is in the Portland area. So, the only thing being saved here, potentially, is the buy-side commission.
Even though the seller is paying about the same commission they would to most other traditional listing agents, REX doesn’t list the home on any of the multiple listing services (they are not a member of the NAR). The MLSs are where most of the major home search sites such as Zillow, Realtor.com, Homes.com, Redfin, etc. get their listing feeds from.
Instead, they list on their own site and they list as a “non-agent listing” on Zillow. “Non-agent listings” (usually FSBOs – for sale by owners) are located on a different tab from agent listings. REX took exception to that and sued Zillow… and lost. They were unable to prove that they were negatively impacted from their listings being on a different tab.
REX isn’t dumb, they know the only major way they’re getting any listing traffic for their sellers is through Zillow so they wanted to increase their exposure. This is a big deal because REX listings don’t show up on most of the other major search sites, including the big one: Redfin. In Portland, Redfin is just as popular (if not more so) than Zillow, so REX is getting at best half the eyeballs on their listings that any traditional agent would get (and yet charging a similar listing commission).
Seems like REX’s business model is short-changing both sellers AND buyers because as we know, more eyeballs online = more boots in the door = faster, more, and higher offers. Add in the fact that REX wants the buyer to pay the buyer commission out of pocket but still list the home for sale at the same prices as traditionally marketed homes… and you get listings that tend to sit for longer and sell much lower.
I don’t mind REX or FSBOs or iBuyers or discount brokerages. There’s room in real estate for LOTS of different business models! But, the thing about REX that gets me is that their whole strategy is based on the idea that buyer’s agents are unnecessary. This is completely backwards. I have experienced clients that happily sell their own homes but STILL use a buyer’s agent for every purchase (the reverse is rarely ever true).
Buyers take on an ENORMOUS amount of risk when they purchase a home. Unless they are very rare buyers that are highly experienced in real estate, they absolutely need an experienced, intelligent agent representing their interests.
Again, it’s not like Realtors came up with this model. Buyer agents only exist because of the demand by buyers for representation.
What really gets me about REX is that THEY OFFER BUYER AGENT SERVICES. They denigrate the need for buyer agents on one side of their mouth and then sell it as a service on the other side.
Oh, if you do want to make an offer on a REX home and use your own buyer’s agent, they will wrap your buyer’s agent commission into the sale price of the home by bumping up the price concurrently. Kinda like… um… every other traditional home sale. [insert eye roll] The buyer is still getting the shaft, though, if the home was listed at a market value determined from traditional sales.
I’ve shown many REX homes and will happily continue to do so. Their business model makes no difference to me as I educate my clients on the options should a listing not offer a buyer agent commission. Even after many years of “disruption” in the market, listings like this are still rare and likely will continue to be.
In the end, REX isn’t a disruptor; they’re just using a marketing ploy to try to gain listings. If sellers feel confident in their knowledge of real estate and have sold a few times before, they are probably better off finding a non-REX agent and negotiating for a lower listing commission or using a flat-fee agent to market the home on the MLS.
Seems like REALTOR commissions are on everyone’s minds…
As a Realtor I’m obviously biased, but I think the DOJ, REX, and others that complain about real estate agent commissions tend to forget that people pay these commissions BECAUSE THEY WANT TO.
Okay, no one wants to pay 20K to sell a home, of course, but people want someone that will help them net the most money through marketing and negotiations, while simultaneously handling the details of the process, dealing with any one of a million problems that can arise during a transaction, and helping to steer them clear of pitfalls and legal risks*. If plopping the home on the MLS and sitting back were all an agent does, very few people would bother hiring a listing agent (it’s not like Realtors are forcing their services on people).
*Realtors are NOT attorneys and we do not provide legal advice, however we have extensive knowledge and can help sellers make smart decisions when it comes to communication and disclosures that could be the difference between a smooth transaction and landing in court.
Weirdly, it’s not listing agent commissions that are under the microscope right now. It’s buyer agent commissions (BACs) that are making headlines. While I understand our current method of doing things seems a little odd - the seller and listing agent decide on total commission and how it will be split between listing and buyer agent… long before the house hits the market - the alternatives are all even odder. No “disruptor” has found a method that works as well.
The reason it works well is that the total commission is baked into the price of the home… as opposed to the buyer having to somehow figure out a way to foot the bill outside the real estate transaction.
Believe me, I’d love to find another method of doing things. When I represent buyers, I have basically no say at all in the amount of commission I’ll make on that sale. And, remember, there’s no such thing as a standard commission. It varies from 0 – infinity (okay, it’s usually 2.25 – 2.75% here in the Portland metro, but CAN be 0-2% and in very rare cases be 3%+).
Sure, I could ask my buyers to cover my commission if they find a REX home or FSBO that refuses to offer a BAC… But, most buyers don’t have an extra few thousand in cash sitting in their back pocket to cover what is usually months of my time helping them through the process.
The oft-discussed alternative is charging by the hour, similar to attorneys. I would happily do that, but then I’d get paid whether a buyer/seller is successful or not… and once I calculate the number of hours I spend working with a client, including lots of evenings and weekends… most clients become quite uninterested in that option.
Given that the VAST majority of homes sell on market with an advertised BAC, sale prices are based on the BAC already being worked in. So, anytime a seller thinks they’ll save a bunch of money by cutting out the buyer’s agent… the buyer who either has to self-represent or pay their agent out of pocket should be the one saving on the sale price of the home, NOT THE SELLER. Because, what is really getting the DOJ and others into a tizzy is that while the listing agent and seller set the commission amount… it’s the BUYER that truly pays ALL the commissions because they are the one purchasing the home!
But, if you think about it for a second, the way that it’s set up currently is certainly NOT in the buyer agent’s favor. The listing agent and seller determine that commission structure, and if you think that impacts how the total commission is split in favor of the listing agent (in most cases)… then yeah, you’d be dead on. And, buyer agents have NO way to know how much listing agents make during a transaction. We only see the buy-side.
Despite headlines to the contrary, agent commissions (particularly buyer agent commissions) have been slowly eroding over the past 20 years. This is due to competition and there’s nothing wrong with that. This is different from market to market… but agent commission percentages certainly are not growing.
Currently, it’s the seller that controls commissions. And I mean, nearly COMPLETELY controls commissions. While I wish there were a better way to do things, it’s worked very well so far, and every other method has either utterly failed or limps along as an outlier.
The old adage “you get what you pay for” is oftentimes still quite true.
Savvy buyers and sellers find ethical, equally savvy agents whose service is WORTH those commissions, and more!
Sellers that are experienced and comfortable going it alone have plenty of options for flat-fee agents so that they can still gain FULL exposure on the MLS.
Buyers that are VERY experienced and comfortable that want to try to save on buyer agent commission have the option to hunt for a house on their own and either buy directly without representation or ask the listing agent for dual-representation, and negotiate a price that makes this equitable*.
*NOTE: Buying a home without representation has a TON of pitfalls and I strongly recommend against it. Using the listing agent as a dual-agent (represents both parties in the transaction) is usually an ethics nightmare and is also strongly recommended against. Buyers that search for homes on their own often think they’ll somehow get a better deal by using the listing agent as a dual-agent. Instead, they tend to get an agent that mostly becomes a paper-pusher and is hog-tied from doing much in the way of guidance during the transaction.
All these options have been around for decades and don’t require using disruptors. The above options aren’t right for the majority of people that buy or sell a home once every decade or so… but for those who go through real estate transactions every year or two, there are benefits (and major potential pitfalls) of real estate without agents. I have met people that have successfully done this and will continue to.
So, I don’t know what the DOJ is on about, but I think it’s much ado about nothing. Real estate agents, whether they’re members of NAR or not, have nothing resembling a monopoly on real estate, buyer agent commissions are handled a little wonky but aren’t at all out of line given the amount of work goes into a successful buy-side transaction, and we’re certainly not forcing our services on anyone.
Newer Real Estate Business of Note: Curbio
Not all disruptors are seeking to cut out real estate agents to the detriment of buyers and sellers, or trick sellers out of their hard-earned home equity.
Curbio is a relatively new company that offers “a fast and effortless process to repair and update homes before they go on the market while deferring payment until closing.”
When I initially walk through a home with a potential seller, one of the many things I’m focused on is putting together what we call a “punch list” - repairs and improvements that will net a seller more money and/or a faster sale. I then prioritize these items based on several factors such as cost, potential return, and the amount of time the seller has before they MUST list the home on the market for sale.
Usually the repairs/updates that will net the most money to the seller are fairly minor and the seller either completes them or hires a contractor to do so. Examples are: paint touch-ups (or re-painting a room to neutralize it for the market), drywall repair, switching out a door, removing beat up window screens, switching out light fixtures or faucets, etc.
Sometimes, repairs/updates needed are larger dollar items and are high enough priorities that it is worth exploring methods to get them done, even if the seller doesn’t have enough cash on hand.
That’s where Curbio comes in. They have a project manager schedule and handle all the work and defer payment until closing on the sale of the property.
To be clear, it’s generally a better idea for sellers to choose the contractor and pay for improvements themselves. But, in some cases, Curbio could be a good option. Especially if the work needed that will net a huge return amounts to a miniature “flip” - such as kitchen or bath updates, or completely rebuilding a deck, etc.
Curbio isn’t the only option for this, either. Many local contractors will work directly with sellers and will defer most of the payment until closing.
I haven’t personally worked with Curbio as of yet but have seen encouraging feedback from other industry professionals. It’s something to be considered after walking through a home with your Realtor and it’s determined that major updates would net a large return. If you’re considering selling your home, though, the first step is to give me a call and have me take a look with you!